Dhananjay Kumar

Partner in the Projects and Projects Finance Team at the Mumbai office of Cyril Amarchand Mangaldas. Dhananjay specialises in project and project finance and focuses mainly on oil & gas, telecom and port sectors. He advises both lenders and developers in the infrastructure sector and has acted for many key players in this space. Dhananjay is also a member of the Bankruptcy Practice of the Firm. He can be reached at dhananjay.kumar@cyrilshroff.com

Upon commencement of the resolution process under the Insolvency and Bankruptcy Code, 2016 (Code), powers of the Board of Directors of the company stand suspended and are vested in and exercised by the resolution professional. While the directors are entitled to attend the meetings of the committee of creditors (COC) formed for the company, such directors have no voting rights.

A question arose over whether the directors should be given copies of the resolution plans and other confidential documents that the COC considers during the meetings. Sharing of such documents could be seen as in direct conflict with the obligations of the resolution professional to maintain confidentiality under the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) and other related regulations. More importantly, it could create positions of conflict between the suspended Board, who often submit resolution plans or are applicants under Section 12A, and the other participants. The Hon’ble Supreme Court in its recent judgment in Vijay Kumar Jain v. Standard Chartered Bank and Others[1] has, with great respect, left some questions unanswered. Continue Reading Supreme Court on the Rights of Suspended Board in Vijay Kumar Jain v. Standard Chartered Bank: Some Implications

India has long recognised the right of foreign creditors to participate in the winding up of Indian companies. As early as 1961, the Supreme Court of India, in Rajah of Vizianagaram (AIR 1962 SC 500), clarified that foreign creditors have the same right as Indian creditors in winding up proceedings under Indian law. Given the backlog of cases and resultant timelines for resolving disputes in the Indian judicial system, winding up has been the remedy of choice, albeit mostly as a pressure point, for unsecured creditors including foreign unsecured creditors of Indian companies. Such creditors have taken winding up actions despite the low return (an abysmal 28% as per one source) and pace of insolvency (almost 4.5 years) in the Indian market. At the same time, there have been instances where consensual restructuring of stressed Indian companies has been halted by such actions of unsecured creditors.

The Indian government from time to time provided a specific legal regime for Indian financial creditors to recover their money – for example, debt recovery tribunals (DRT) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI). But no additional measures were suggested for non-financial creditors.

The Insolvency and Bankruptcy Code, 2016 (Insolvency Code) has been one of the biggest Indian reform of recent times, which has moved the regime away from one that was highly uncertain for foreign investors. Among other important changes, the Insolvency Code contemplates change in control of the company during the insolvency resolution process to an insolvency professional (IP). The Insolvency Code comes in an environment where many Indian companies have gone global and have made acquisitions outside India.

India has not adopted the United Nations Commission on International Trade Law Model Law on Cross-Border Insolvency (UNCITRAL Model Law). It is notable that only a few countries that have adopted the UNCITRAL Model Law have specified a ‘reciprocity’ requirement for recognition of insolvency proceedings. Therefore, even if India has not adopted the UNCITRAL Model Law, Indian insolvency proceedings may be recognised in a jurisdiction that does not have a reciprocity requirement (this remains untested for Indian insolvency judgements). Also, Section 234 of the Insolvency Code provides for the Indian Government to enter into bilateral treaties with other countries for application of the Insolvency Code to assets or property outside India of the insolvent entities. However, to date, no such bilateral treaty has been signed.

The Enforcement of Security Interest and Recovery of Debt Laws and Miscellaneous Provisions (Amendment) Act, 2016 (the Act) received assent of the President on August 12, 2016 and was published in the Gazette on August 16, 2016. It will come into effect from such date(s) as may be notified by the Central Government. The Act makes far reaching changes to the way securitisation and reconstruction companies are regulated, as well as the category of financial assets and the secured creditors to whom non- judicial remedies and access to debt recovery tribunals are available. We try to examine this through this short post.

The Indian banking system has been riddled with non performing assets (NPAs) for some time now. To help lenders, the Reserve Bank of India (RBI) has introduced a variety of debt restructuring policies, including the flexible structuring of project loans and the strategic debt restructuring scheme. But these schemes have met with limited success, mostly due to the lack of funds available for promoters to invest, non-cooperation on the part of the borrowers and the sub-optimal levels of operations in the relevant companies.

The lukewarm economic environment has further amplified these woes. As such, ‘bad’ loans across 40 listed banks in India had increased to Rs. 5.8 trillion (approximately USD 85.9 billion) in March 2016 from Rs. 4.38 trillion (approximately USD 64.9 billion) in December 2015. Estimates show that weak assets in the Indian banking system will reach Rs. 8 trillion (approximately USD 118.5 billion) by March 2017.

About our Firm

Cyril Amarchand Mangaldas was founded in May 2015 to continue the legacy of the 100-year old Amarchand & Mangaldas & Suresh A. Shroff & Co., whose pre-eminence, experience and reputation of almost a century has been unparalleled in the Indian legal fraternity. With a long and illustrious history that began in 1917, the Firm is the largest full-service law firm in India, with over 625 lawyers, including 100 partners, and offices in Mumbai, New Delhi, Bengaluru, Hyderabad, Ahmedabad and Chennai. Several of our professionals are cited as leading practitioners by global publications like Chambers and Partners, International Financial Law Review, Asia Legal 500 and Euromoney. Visit our Website

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